Please mark the following as either True or False

___ To decrease the variance of a portfolio of assets, simply add assets with low/small variance.

___ An investor who is in the 33% tax bracket is indifferent between a 9% tax-free muni and a 6% taxable bond.

___ The standard deviation of a portfolio of assets is simply the weighted average of the standard deviations of the individual assets.

___ The formula of the approximations of the real return becomes less accurate as the rate of inflation increases.

___ When deciding between a risky asset (or portfolio) and a risk-free asset, the more risk averse the investor, the greater the proportion they will choose to invest in the risky asset

___ For a given set of possible cash flows, as the required risk premium for a project increases, its price must decrease to entice investors to purchase the asset.

(Hint: What is the price and expected return (premium) relation?)

___ Eurodollars are dollar-denominated deposits at banks in European countries or European branches of American banks.

___ Except for Treasury bills, money market securities are not free of default risk.

___ Standard & Poor’s 500 is a broadly based index of 500 firms and it is a price-weighted index.

___ If an asset’s returns come from a normal distribution, then the relation between its arithmetic and geometric averages are: E[arithmetic average] = E[geometric average] – 0.5σ2.

___ Relative to a buy and hold strategy, average arithmetic returns overstate the return on a portfolio.